Thanks to the Securities and Exchange Board of India (Sebi) guidelines thatcame into effect from September 1, the Power of Attorney (PoA) you give toyour broker has been restricted. While this would reduce the scope formisuse, unscrupulous traders could still shortchange investors.

Sebi says PoAs must be more specific, being only used to buy and sellshares, mutual funds and subscribe to Initial Public offers (IPOs) on behalfof their clients.

Earlier, brokers who followed a generic PoA format, could not be hauled up,when authorised sub-brokers carried out trades without the clients approval.At times, brokers who paid the exchange on behalf of the client but didntreceive payments from the clients on time indulged in selling shares torecover their receivables, without informing . The more the churning, thehigher the commissions earned by the broker.

Brokers are now mandated to make confirmation calls for all trades at theend of each day. They are supposed to send physical or online copies of thecontract notes within 24 hours, besides maintaining proof of dispatch. Thebig brokers also send SMS alerts at the end of the day.

Yet, the scope for discretionary trades is still possible, says SantanuSyam, executive director-operations, Angel Broking. "There is no way, thecentral office would know if the trade was initiated by the client, untilthere is an audit or complaint by the customer," he said.

Soon, investors will also get SMS alerts from stock exchanges on which theirtrades are carried out. But, Syam fears, those intending to cheat mayintentionally register a wrong mobile number on the client database, so thatthe client misses out on the SMS alerts.

"Investors, especially high net worth individuals (HNIs), have paid a bigprice for trusting brokers blindly without reading the details of the PoA,"says advocate Ashwin Ankhad of Ashwin Ankhad & Associates. The `400crore-fraud by Citibanks employee should come as a wake-up call.

With more than `4.5 crore of average investible assets each, HNIs are soughtafter by private bankers and stock brokers. Portfolio management servicesoffered by brokers invest in equities, and aim to give returns four-five percent ahead of their benchmark. Wealth managers or private bankers investacross asset classes and even specially designed structured products.

Ideally, the financial advisor is supposed to get an approval for anyredemption or purchase he makes, but most get these forms signed in advance.Without specific permission, the investor loses control over where heintends to invest his funds.

According to Ankhad, clients need to take the necessary precautions and runan identity check on the relationship manager when they sign up. Investorscould schedule meetings with department heads to keep a tab on theinvestments being made on their behalf. Finally, clients need to ask for therequisite account statements from wealth managers.

Sebi has done its bit to make these specific; you need to do the rest tocheck potential misuse

SEBI SAYS PoAsMUST BE MORE SPECIFIC,

being only used to buy and sell shares, mutual funds and subscribe to IPOson behalf of their clients

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